The MacNeil/Lehrer NewsHour

MR. LEHRER: Good evening. Leading the news this Thursday, the Senate passed bills to force AIDS infected health workers to disclose their disease. President Bush said he wants to grant the Soviet Union special trade benefits as soon as possible, and the United States and Syria agreed on terms for a MidEast peace conference. We'll have the details in our News Summary in a moment. Robin.

MR. MacNeil: After the News Summary, we have a report on today's Senate debate on making AIDS testing mandatory for doctors. Then a report on efforts to win FDA release of an experimental drug for Alzheimer's sufferers, and a major focus on the health of American banks. We have a debate on whether bank failures mean another S&L situation. NEWS SUMMARY

MR. LEHRER: The Senate today passed two bills on mandatory AIDS testing for health care workers. Senators voted 81 to 18 to impose prison terms of at least 10 years on infected health care workers who fail to disclose they have the disease. That bill was sponsored by Republican Sen. Jesse Helms. In a unanimous vote, the Senate then approved a measure that essentially forces doctors and other medical workers to be tested. The bills now go to the House. We'll have much more on this story after the News Summary. Robin.

MR. MacNeil: The Senate gave itself a 23 percent pay raise last night. By a vote of 53 to 45, Senators did what House members did a year ago, increased their salaries to $125,000. In exchange, they will no longer be able to accept money for speaking engagements. Majority Leader George Mitchell said the pay raise was long overdue.

SEN. MITCHELL: It's a reasonable and responsible and accountable piece of legislation. It bans honoraria and it makes the pay of Senators equivalent of that in the House. In the overall level of compensation of Senators, including, honoraria, there is no change.

MR. MacNeil: Today consumer advocate Ralph Nader criticized the Senate's action.

RALPH NADER: Senator George Mitchell and Senator Robert Dole led a narrow majority of avaricious Senators to a huge pay increase directly in the face of massive government deficits, cutbacks in critical programs, S&L bailouts, scandals and rising unemployment. The majority of Senators have stiffed the American people, and this time the voters will remember in November.

MR. LEHRER: Black leaders spoke out about Supreme Court nominee Clarence Thomas today. The Congressional Black Caucus formally announced its opposition to the nomination. A coalition of black conservative leaders said Thomas has been the victim of a political lynching. Both groups appeared at Washington news conferences.

SPOKESMAN: Throughout his tenure in public service Judge Thomas has never forgotten his roots and has always continued to serve black America, particularly low income black America, and has as a consequence served the best interests of all America.

SPOKESMAN: We cannot ignore or excuse Clarence Thomas's record, views and values, merely because he is an African-American. His views of constitutional rights as he has articulated them as jurist, administrator and before the nation's press are inconsistent with the interests of the people we serve.

MR. LEHRER: Thomas continued to make courtesy calls on Capitol Hill. Today he met with Sen. Alan Simpson, the Republican Whip, who is from Wyoming.

MR. MacNeil: George Bush today became the first American President to visit Greece in more than 30 years. He challenged Greece and Turkey to end their long dispute over the Island of Cyprus by the end of the year. He made the remarks in an address to the Greek parliament and pledged U.S. help in resolving the feud. Later, riot police fought several thousand Greek students protesting the President's visit. The clash took place in the streets outside a state dinner for the President. The students hurled gasoline bombs and stones. The police fired back with tear gas. Officials said a number of people were injured but released no figure. While in Greece, President Bush said he wanted to grant the Soviet Union special trade status as soon as possible. He said for now technical problems with Soviet legislation loosening the country's emigration laws were standing in the way. Mr. Gorbachev also won new pledges of help from Canada and Great Britain as he continued his London visit. We have more from Mark Webster of Independent Television News.

MR. WEBSTER: The cavalcade of aging limousines which glided into Downing Street brought the Soviet leader on the next stage of his diplomatic odyssey. Mr. Major's been charged by the other G-7 leaders with putting meat on the bones of their declaration of support, a helping hand from Mr. Gorbachev but a daunting task for the British Prime Minister. Safely inside from the rain, there was a commitment from Britain to help with technical assistance, particularly in the area of food distribution and energy. And though the Soviets by no means got all they wanted, the growing personal rapport between the two men augured well for the meeting in Moscow. Over lunch, Mr. Major had another chance to discuss how to reform the Soviet economy and congratulate Mr. Gorbachev on what he's achieved so far. And even the skies cleared up as the two leaders faced the press in Downing Street.

PRIME MINISTER MAJOR: Both the President and I saw these discussions as but the beginning of the continuing dialogue. We examined some very practical, some very pragmatic ways forward, and if I may speak for myself, I found them extremely useful discussions and I look forward to resuming them in Moscow later this year.

PRES. GORBACHEV: [Speaking through Interpreter] Because what we're doing now is laying down bricks in the foundation of future cooperation.

MR. WEBSTER: But in all this diplomatic euphoria, experts warned that the process of restructuring the Soviet economy could still take 20 years and will require billions in Western aid.

MR. MacNeil: In this country, the Commerce Department said the U.S. trade deficit widened in May but only slightly. The imbalance between imports and exports rose 1 1/2 percent to $4.6 billion last month. It was the deficit's third best showing in eight years.

MR. LEHRER: The United States and Syria agreed today on the terms for a MidEast peace conference. The announcement was made in Damascus after Sec. of State Baker met with Syrian President Assad. Baker said the United Nations would have an observer role in a peace conference, something Israel has opposed. Baker will visit three other Arab nations before going to Israel on Sunday. Iraqi officials told a team of United Nations inspectors today they had no more nuclear secrets to tell. But a UN spokesman said they were far from ready to draw any conclusions about the extent of Iraq's nuclear weapons capability. In Washington, Defense Secretary Dick Cheney said President Bush was deadly serious about stopping Iraq's nuclear program. He spoke in an interview with the Associated Press.

SEC. CHENEY: I think he has been reminded that it's not an empty threat. He made the mistake once before of misjudging the President's determination and I don't think he'll make that mistake again. As Jim Baker said the other day, we haven't ruled anything in or out and we've got a wide range of capabilities available to us. We hope we can get this resolved through the UN and that's the effort that's currently underway.

MR. LEHRER: The UN Security Council has given Iraq until July 25th to fully disclose all of its nuclear, chemical and biological weapons facilities.

MR. MacNeil: The group holding at least two Americans hostage in Lebanon today warned of grave consequences if Germany did not release two Lebanese Shiites imprisoned there. Islamic Jihad sent the message to a Western news agency in Beirut accompanied by a photograph of Terry Anderson. It was the first picture of Anderson released in two years. He's been held since 1985. The message did not mention Anderson but vowed that Germany would suffer heavy losses if it continued to support what it called American and Jewish policies in the third world. A spokesman for the German government said it would not be pressured into releasing convicted terrorists. Vietnamese officials said today that one of the three missing American servicemen thought to be pictured in a recent photograph was dead. Family members identified the man on the left in this photo as Col. John Robertson. The photo's being analyzed by Pentagon officials. Robertson was shot down over North Vietnam in 1966. A spokeswoman for the Vietnamese Foreign Ministry said her government handed over Robertson's remains to U.S. officials in April 1990. Pentagon Spokesman Pete Williams said U.S. forensic experts have not been able to identify any remains as Robertson's. Defense Sec. Cheney had this to say about the Pentagon's investigation of MIA sightings.

SEC. CHENEY: Whether or not someone is still held there against their will no one can prove, but we take each report very seriously and do everything we can to try to resolve it. Usually what we find in these cases, once we've run down the thread, is that, that there's no evidence to support the notion that someone's still there. But we cannot assume that to be the case. We have to check out every single report and we will this time too.

MR. LEHRER: Yugoslavia's federal presidency announced today it would immediately withdraw all its troops from the republic of Slovenia. The federal army moved in late last month after Slovenia declared itself independent. There was no immediate response from the army on whether it would comply.

MR. MacNeil: That's it for the News Summary. Still ahead on the NewsHour, testing doctors with AIDS, a push to help Alzheimer's patients and banks in the red. UPDATE - AIDS TESTING

MR. LEHRER: First tonight doctors and AIDS. There were two votes on this issue in the U.S. Senate today. Roger Mudd reports. Roger.

MR. MUDD: The two votes were because the issue of testing is so politically volatile. The odds of a patient contracting the AIDS virus from a doctor are by all accounts remote, but the patient's fear of contracting it is thought to be great. So today when Sen. Jesse Helms of North Carolina called for a vote on his amendment criminalizing the transmission, everybody in the Senate knew it would be tough to vote against. The Helms Amendment would subject to a 10-year prison term or a $10,000 fine or both any doctor, dentist, or nurse who knowingly carrying the HIV virus provides invasive treatment without telling the patient beforehand. Invasive would include root canal, organ transplant, heart surgery, any procedure during which the infected blood of the medical worker might enter the patient's system. The Federal Centers for Disease Control has identified a total of five patients who got the virus all from the same Florida dentist. He died last year of AIDS. One of those five was 23 year old Kimberly Bergalis, who herself, is dying of AIDS.

SEN. JESSE HELMS, [R] North Carolina: Kimberly Bergalis's dentist had AIDS. He knew he had it. But he refused to notify his patients that he had AIDS. And now as Paul Harvey says, we know the rest of the story insofar as Kimberly. She doesn't have a chance so I don't think -- I don't think a 10-year sentence is severe when you compare what these people are willing to do to their innocent patients, so don't talk about me -- don't talk to me about 10 years being too severe. I'm so old fashioned that I believe in horse whipping. I feel that strongly about it, and you consider whether your wife or husband or children or grandchildren could be subject to this sort of thing that Kimberly Bergalis has suffered. But Kimberly Bergalis is not alone. There are so many episodes popping up. Over in Minnesota, there was a pediatric surgeon who continued to deliver babies and he did rectal and vaginal examinations months after he knew that he had AIDS. Now what does one say to the mothers in Minnesota -- one of them who told Newsweek Magazine that every time she sees her infant with a diaper rash she worries whether her child is infected with the AIDS virus? Vote as you please, Senators, and make whatever comment you want to, but I tell you the American people understand this issue. If this amendment goes down, a lot of questions are going to be asked when Senators get home, how come they voted against it.

SEN. EDWARD KENNEDY, [D] Massachusetts: So what we have today, Mr. President, is the proposal of the Senator from North Carolina, and maybe there are going to be those here in this body that say, oh, we're going tovote for that, and they'll be able to go back home and say we've really ensured that the health delivery system today is going to -- you're really safe, you're really secure, you're free from the possibilities of contracting HIV or AIDS because we voted for the Jesse Helms Amendment. To put anyone that knowingly is going to have an, under his definition, invasive procedure, they're going to go to jail, therefore, go on into your hospital, your medical center, your dentist's office, there really is no chance that you're going to ever get HIV -- well, that is nonsense! That's nonsense. What medical profession, if they feel that they may be at risk, is going to take the test and then they know that that is going to end their career in practicing medicine, because then if they knowingly have HIV and then go out and provide or go forward with some invasive procedure, then they go to jail. So if that individual thinks they may or may not have it, what are they going to do? Are they going to go out and get the test? Of course not! Of course not! And they're going to continue to practice medicine and put the patients at greater risk! That's going to be the effect of the amendment from the Senator from North Carolina.

MR. MUDD: As expected, the Helms Amendment carried. The vote was 81 to 18. The 18 were from both parties, most liberal. The Senate leadership, however, wanted to take the sting out of the Helms Amendment with a compromise. The states would have one year to set up guidelines similar to those issued on Monday by the Centers for Disease Control. Republican Orrin Hatch of Utah, who favored Helms, also favored the compromise.

SEN. ORRIN HATCH, [R] Utah: Specifically, these guidelines encourage health care workers to develop certain universal precautions to protect patients and workers from the possible spread of the HIV virus. In addition, these guidelines require health care workers who test positive for HIV to either refrain from performing exposure prone procedures or notify prospective patients before performing such procedures. Over 90 percent of our citizens support mandatory disclosure by nurses, physicians, and dentists who are infected with HIV. I believe, as CDC does, that the disclosure must occur when procedures are performed which put the patient at risk of exposure. So I join Senators Dole, Mitchell, Kennedy in supporting an amendment to enforce these guidelines.

MR. MUDD: The compromise passed ninety-nine to nothing. Thus, Senators got to vote, vote on both sides of the issue, leaving it to House and Senate negotiators up ahead to figure out which amendment takes precedence. FOCUS - QUICK FIX

MR. MacNeil: When is it okay to release an experimental drug to patients with a fatal disease? This week a government panel ruled that an experimental drug called THA should not be made available to patients suffering from Alzheimer's Disease. It was the second time the drug has failed to win government approval but not the last word on the drug. Tom Bearden has our report.

MARTIN MAKELA: [Helping Wife Walk Outside] Watch it, watch it, don't stumble.

MR. BEARDEN: Jan Makela suffers from Alzheimer's Disease. Five years ago when she was diagnosed with the fatal illness, her husband, Martin, left his job to take care of her. As her condition worsened, Martin searched for something to fight the debilitating effects of the disease. He found a drug called Tacryne or THA. Tacryne is not a cure for Alzheimer's, but some believe it helps people regain some of their memory loss. Jan Makela took the drug for five monthsand her family says they saw small improvements. The problem for the Makelas was that THA had not been approved by the federal government. That meant they had to obtain the drug through an underground network.

MR. MAKELA: It was uncomfortable, but I guess it's a kind of a situation, say, hey, I know I'm doing what's morally right and I think that I'm morally right in this instance and I think that road blocks against getting this to my mind are immoral.

MR. BEARDEN: The process the Federal Food & Drug Administration uses to approve a drug starts with an independent advisory panel of experts which considers years of clinical data on a proposed drug. But in the case of THA, the panel voted unanimously against giving the crucial go-ahead, which would have made THA available to Janet Makela and 4 million other Alzheimer's patients. The panel said there wasn't enough evidence to prove THA actually works. They also worried about toxic side effects on the liver. Steven Ferris, a researcher at New York University Medical Center, directed the government panel that ruled against THA.

STEVEN FERRIS, Chairman, FDA Advisory Panel: What was unclear was whether that effect, that difference between the group getting the real drug and the group getting a sugar pill, so to speak, it was unclear whether that really was a big enough effect and whether it represented a meaningful clinical benefit.

MR. MAKELA: This to me is kind of -- the situation with THA is kind of as if, okay, you see somebody sinking in quicksand and you want to help them and so you look around and here is a piece of rope and you're going to throw 'em that rope and just when you're going to throw it to 'em, somebody from the government taps you on the shoulder and says, I'm sorry, you can't use that because it has not been approved yet by the U.S. government. So what are you going to do? Let the person sink? You've got some help there, so, I mean, that's kind of the situation I'm looking at and I'm very, very frustrated.

MR. BEARDEN: Makela voiced his frustration in a letter to the Wall Street Journal and joined families from around the country in a campaign urging the FDA toward approval.

STEVEN FERRIS: I'm painfully aware that Alzheimer's Disease is a terrible personal tragedy not only for the patients but certainly for their families. And I can understand the outcry that is heard from some families who say they're not interested in regulation, they're not interested in the drug approval process, they want to decide for themselves whether or not to try out a drug and they're willing to make their own decisions about it. I think there are several things that argue against this. One is that years ago we had traveling medicine shows selling drugs to the public, drugs which clearly were of no value. It's easy to convince the lay public that a drug is effective. So I think it's very important for experts in this field to play a role in the decision process.

MR. BEARDEN: The controversy over THA strikes at the heart of a greater ethical question. Should patients who will die from a disease anyway be given highly experimental drugs on the chance they may do some good? Does the government's responsibility to ensure the safety and effectiveness of a drug outweigh a family's need to provide every available treatment no matter how effective or risky to a terminally ill patient? The Makelas don't think so.

MR. MAKELA: If there was 40 percent success with THA or 20 percent or 1 percent, if 1 percent had success and improvement with this medication and my wife was in that 1 percent, that's 100 percent for me. So I -- you know -- I don't see any reason why they have to dig their heels in on this issue.

MR. BEARDEN: Dr. Carl Peck is the FDA's director of drug evaluation and research.

DR. CARL PECK, Food and Drug Administration: Congress has charged the agency with facilitating drug development for drugs to treat serious and life threatening illnesses and to do that in such a way that it protects patients from drugs that are unsafe or ineffective.

MR. BEARDEN: There is a precedent in favor of greater drug access for the fatally ill. In 1987, after a wave of public protest, the FDA formalized a policy on experimental drug access. It agreed to let AIDS patients receive the experimental drug AZT after a panel approved its effectiveness. Dan Perry thinks the same route should be taken for those with Alzheimer's. Perry works for the Alliance for Aging Research, a group supported by business and medical organizations, including the manufacturers of THA.

DANIEL PERRY, Alliance for Aging Research: I think we're in somewhat of a new environment because of the crisis in HIV infection. Activists in the AIDS community have brought pressure to bear I think appropriately to try to streamline the process and make sure that people that need help get help, and I think that it's high time that there be that kind of advocacy on behalf of older Americans.

MR. BEARDEN: Steven Ferris is concerned about the impact of such activism.

STEVEN FERRIS: There's an enormous amount of pressure on the FDA to expedite this approval process to rush the drug onto the market and, in part, to bypass the normal sets of procedures and criteria for careful scientific review and demonstration of efficacy of clinical benefit. So this is a situation which in a way could be precedent setting. The underlying question is do we stick with standard scientific criteria, which requires an objective demonstration of treatment benefit, or do we make drugs available in an expedited way before we really have sufficient information to demonstrate effectiveness?

MR. BEARDEN: Congressman Tom Campbell of California thinks legislation is needed to force the FDA into change. He's sponsoring a bill which will give terminally ill patients more power to decide whether to try an unproven drug.

REP. TOM CAMPBELL, [R] California: When a doctor is dealing with a patient who is terminally ill, let's say an Alzheimer's patient or a patient with cancer, only in those categories I think that drugs should be made available once they have passed that first test, namely that they are proven safe, that they are not toxic.

MR. BEARDEN: Because the first drug therapy approved for Alzheimer's will be used by a mostly Medicare eligible population, the financial impact on the government will be great and some say this puts more pressure on the FDA to make its decision for approval carefully.

STEVEN FERRIS: Estimates are that a drug effective for Alzheimer's or marketed for Alzheimer's Disease could earn $1/2 billion or $1 billion a year in the United States alone. Where does this cost get paid from? Certainly it gets paid for -- it costs individual families in part -- but the whole public health system would bear the brunt of this and the public pays for the public health system.

DANIEL PERRY, Alliance for Aging Research: If there are no better interventions to such devastating conditions as Alzheimer's Disease, that is where the real cost will come. If the baby boomer generation ages with the same vulnerability to these diseases without new interventions, without those medicines, that's where the cost will take off.

MR. BEARDEN: For Martin Makela, the $400 a month price tag for the unapproved drug became too much of a financial burden and he took his wife off the drug.

MR. MAKELA: The hardest thing with this disease is accepting the fact that this woman that I love very, very much is just slowly fading away. She's fading like a photograph that's just been out in the sun or something and it was bright and sharp and everything and then it's just gradually disappearing. I mean, just little by little it's going, it's just gone.

MR. BEARDEN: The future of THA is uncertain. The FDA may allow scientists to experiment with the drug but it's unlikely that Jan Makela and others who are in the advanced stages of the disease will be allowed to participate in those trials.

MR. LEHRER: The head of the FDA, Dr. David Kessler, told panel members Alzheimer's Disease will be added to the high priority drug approval list which includes AIDS and cancer. FOCUS - BOUNCED BANKS

MR. MacNeil: Next tonight we look at the health of the banking industry. This week two of the nation's largest banks, Manufacturers Hanover and Chemical Bank in New York, made the largest merger in bank history, their strategy to overcome financial problems by consolidating. Encouraging bigger banks is among the Bush administration's solutions to the industry's increasing financial woes. Recently Judy Woodruff heard differing views on what to do about the industry, which has seen a record number of failures this year. She began with this background report.

MS. WOODRUFF: This is a bank run 1930s style -- and this is a bank run 1990s style. The difference is that the depositors at this bank, Bank of New England, had nothing to worry about. Their money was backed by the full faith and assurance of the U.S. government, the Federal Deposit Insurance Corporation or FDIC, to be exact, a federal agency set up during the depression, banking's darkest days in 1933. Now the solvency of that fund, the mainstay of America's banking system, is in doubt.

CHARLES BOWSHER, Comptroller General: [April 26] But next year unless the fund is rebuilt, it will almost certainly be insolvent as more troubled banks fail.

WILLIAM SEIDMAN, Chairman, FDIC: [June 27] We have not seen at this point any recovery in the banking system and so the recession continues in the banking system and that increases the number of failures.

MS. WOODRUFF: In fact, the FDIC says about 400 banks with assets of $200 billion could fail by the end of 1992. Currently the FDIC's fund has $3.2 billion in it and expects to have less than half that by year's end. By the end of 1992, the FDIC says the fund could be from 3 to 11 billion dollars in the red. With so many banks in trouble, the question now is whether banks, themselves, will be able to come up with the money to keep the fund solvent, or will additional moneys have to come from the federal government. It is the failure of big banks, like the Bank of New England, that is draining the fund. After the FDIC repays the bank's depositors and assumes its debt, the Bank of New England failure will cost the FDIC $2 1/2 billion. But as the bank's chairman assured depositors last January 6th, no one would lose a penny from his own bank accounts.

LARRY FISH, Chairman, Bank of New England: [January 6] It is a seamless transition. It's business as usual and all of their deposits, regardless of the amount, are completely and totally insured by the federal government.

MS. WOODRUFF: That caused the bank to go under, according to Charles Peabody, a bank analyst with Kidder Peabody, are the same problems that plague many other banks.

CHARLES PEABODY, Bank Analyst, Kidder Peabody: Their problems were primarily commercial real estate. But I think what became more well known was the lack of controls and information systems that they had in place to control the aggressive lending program that they had pursued over the last four or five years.

MS. WOODRUFF: The overbuilding of commercial real estate and subsequent nosedive in real estate prices put the squeeze on the Bank of New England and many other banks as well. When the FDIC took over the Bank of New England on January 6th, it was clear that to make the bank salable, the FDIC would have to absorb the bank's bad real estate loans.

PAUL DOIRAN, FDIC: We try to pull those out, basically clean the bank up, if you will, of those kind of liabilities and losses that may be present, and present the bank in a clean fashion or a cleaned up fashion, I guess is the word.

MS. WOODRUFF: In April, the FDIC chose Fleet/Norstar, a Providence, Rhode Island bank, as Bank of New England's buyer. They bid $625 million for the bank. In return, they got 320 branches in three states, 12,000 employees and $16 billion in deposits. What they didn't get is over $5 billion in bad loans which the FDIC assumes.

CHARLES PEABODY: We're very high on the deal that Fleet cut for itself. we think it provides them with a large bank, with a clean earnings stream, that provides them with significant cost savings as they integrated.

MS. WOODRUFF: But the FDIC can't afford many more deals like Bank of New England. And not surprisingly, there are a number of critics who suggest the FDIC could handle its fund better. One big criticism is the FDIC moves too slowly closing troubled banks. But Harrison Young of the FDIC says his agency is not clairvoyant.

HARRISON YOUNG, FDIC: I would be very unhappy to see any set of regulators deciding that they knew how everything was going to come out and start moving all the furniture around and try to resolve problems before it was clear that the private sector wasn't going to resolve them. I think you have to strike a balance between delaying too long and sort of trying to take over the whole market yourself.

MS. WOODRUFF: Wilbur Ross, with the Rothschild Investment Bank, represents Bank of New England's bondholders who stand to lose over $700 million. He has his own solution to the problem of bank failures.

WILBUR ROSS, Investment Banker: Banking crises will recur as long as we're into curative medicine rather than preventive medicine, and that's what I mean when I said that the real issue isn't should they have seized the bank on this date or on some other date, the real issue is why was the bank allowed to go for so many years, growing very very rapidly with an extreme concentration of a very risky category of loans.

MS. WOODRUFF: The Bush administration has some suggestions too, a detailed plan to reform banks, including ending interstate banking restrictions, allowing banks to enter new businesses, such as insurance, and stock trading, permitting non-banks to purchase banks, and giving the FDIC a $70 billion credit line at the Treasury Department or the insurance fund.

NICHOLAS BRADY, Secretary of Education: [February 5] Fundamentally, what this legislation will do is to make a stronger industry, both small and big banks.

MS. WOODRUFF: So while there is little agreement on how to prevent future bank failures, everyone is pretty clear about the fact that something has to be done anddone soon. The question, of course, is: Is it too late? With us to try to answer that are four people who keep a close watch on the banking system, each from a different perspective. Robert Glauber is undersecretary for finance at the Treasury Department. Ed Yingling is executive director of government relations at the American Bankers Association, a trade group that represents small and large banks with 95 percent of the industry's assets. Dan Brumbaugh was deputy chief economist at the Federal Home Loan Bank Board from 1983 to '86, and author of the 1988 book "Thrifts Under Siege." He co-authored a study last year on the health of the Bank Insurance Fund for a House Banking Subcommittee. He joins us from San Francisco. And U.S. Representative Bruce Vento, Democrat from Minnesota. He is a member of the House Banking Committee and he joins us from St. Paul. Gentlemen, I want to ask you all first just how bad is this crisis that we're hearing about? We've heard the number 400 banks are going to fail in the next two years. Is that accurate, Bruce Vento?

REP. VENTO: Well, I think it is. I think you're going to see even greater and it's the magnitude of the failure. I think this is all part of the same piece of cloth of the S&L failure, the bank failure. It's the same type of problems in terms of unable to control, the regulators' inability to control, and I can see a $100 billion loss a year between these two funds as far as the eye can see.

MS. WOODRUFF: What about you, Mr. Yingling, is it that bad?

MR. YINGLING: Well, we would agree with the analysis if Chairman Seidman. He's the only one who really has the numbers because he's the one who can go in and examine the banks. It's apparent that over the next few years we're going to have continuing bank failures, but we don't feel that it's in any way comparable to the S&L disaster.

MS. WOODRUFF: But you would accept the 400 banks over the next two years as a ballpark figure?

MR. YINGLING: We would accept that figure, yes.

MS. WOODRUFF: Dan Brumbaugh, where -- what about you?

MR. BRUMBAUGH: Well, Mr. Yingling is not correct. As the author of the report that you referred to, along with Jim Barth and Bob Lighten, we had access to much of the data that our available to the FDIC. One way to measure the magnitude of the problem in addition to the number of banks that are going to fail is the estimated cost once those banks do fail. One Cleveland Federal Reserve Board official has estimated that cost to be approximately $200 billion. The administration has proposed borrowing up to approximately $70 billion. We, ourselves, indicated that the cost to close all these banks would more than wipe out the bank insurance fund today if all the costs were realized. It is conceivable, given the very large number of assets in troubled banks that the cost could get to the level of the savings & loan crisis, as Congressman Vento indicated.

MS. WOODRUFF: Mr. Glauber, could it be that bad?

MR. GLAUBER: Judy, it could be anything, but best bet is based on estimates from a wide variety of different groups, that what the administration proposes in a recap should be enough. We can't give a guarantee. It depends on what happens to the real estate market.

MS. WOODRUFF: The 70 billion, which we want to get to later. Let me ask you all another question. Which banks are in trouble? Can we say one region, one kind of banks in terms of the kind of lending and kind of activity it's been involved in, Mr. Glauber?

MR. GLAUBER: Well, most of the banks that are in trouble are in trouble because of real estate loans in the commercial real estate market and a lot of that's concentrated in some regions. New England is one of those regions.

MS. WOODRUFF: So most -- is it fair to say most of it, much of it --

MR. GLAUBER: A good part of it is, and that tends to be located in the somewhat larger banks rather than the smaller banks.

MS. WOODRUFF: Congressman Vento, would you agree with that?

REP. VENTO: Well, I think it's really nationwide and I think that it was before the recession, it's going to be after the recession. It's the nature of the loans that they have imbedded in their portfolio. They simply -- the recession obviously aggravates that, but simply a decade of bad decisions, a lack of examination and regulation, and you're going to face this. It isn't just 400 banks. We know that there are over a thousand banks that have trouble. And it's the failure to admit this and the continued denial is what really results in the type of forbearance and the, really the compounding of this problem.

MS. WOODRUFF: Mr. Yingling, you're shaking your head. It's not nationwide? It's not that bad?

MR. YINGLING: Well, we're throwing around a lot of numbers here that I think are grossly exaggerated and very misleading and I think we ought to be careful. For example, we're talking about a thousand banks. We're talking about the watch list of the regulators. They have a list of banks they watch. They're not all going to fail and, in fact, the number of banks on that list is down. Now a countervailing problem is the size of the banks on that list has gone up slightly.

MS. WOODRUFF: This is whose watch list? I'm sorry.

MR. YINGLING: This is the regulators' watch list.

MS. WOODRUFF: The FDIC and others.

MR. YINGLING: Mr. Brumbaugh is throwing around the figure of 200 billion. There is absolutely no justification for that number. Mr. Brumbaugh has his own pet theory of accounting, which is basically liquidation value accounting, that he wants to apply to the banking industry.

MS. WOODRUFF: Well, without getting --

MR. YINGLING: It is a totally inappropriate way to account.

MS. WOODRUFF: All right. Without getting into the specifics of that, you're saying he's adding numbers up differently from the way the banking industry thinks it ought to be added up?

MR. YINGLING: Absolutely. Even the number 70 billion that we've been throwing around a little bit here is a misleading number. 45 billion of that 70 billion is actually working capital, which means it is backed by real assets at the FDIC, such as office buildings they take over from failed institutions. So I think we really need to be careful about these numbers.

MS. WOODRUFF: All right. So given the fact that there's going to be some disagreement here about the size of the number, let me turn to you, Mr. Brumbaugh, and ask in terms of where these banks are the kind of lending they've been doing, can we pinpoint it, or is it a problem all over the country?

MR. BRUMBAUGH: We can pinpoint it generally. For example, the biggest acute problem we face at the moment appears to be in the largest banks in the country and it's very important to understand that the assets are concentrated in the largest banks in the country. The 46 money center banks, 3/10 of 1 percent of all banks, have approximately 40 percent of all assets, approximately $1.2 trillion, which is the size of the entire savings & loan industry at its largest.

MS. WOODRUFF: What do we mean by money center banks? What's that?

MR. BRUMBAUGH: The definition is those banks with over $10 billion in assets.

MS. WOODRUFF:So the biggest --

MR. BRUMBAUGH: Those 46 banks have 1.3 trillion in assets.

MS. WOODRUFF: But you're saying this is, it's widespread and it's mainly in the biggest, the bigger --

MR. BRUMBAUGH: Well, no, it's more widespread, as Congressman Vento said. For example, the mutual savings banks in New England, for example, number approximately 450 and they have an average size of $250 million, and they've lost money as a totality in 1989 and 1990 in terms of profitability.

MS. WOODRUFF: Mr. Glauber, where does the fault lie?

MR. GLAUBER: Well, I think the fault lies all over the place but mainly it is with an economy that went into recession and a real estate market that has taken a downturn worse than the one we've seen in a very, very long time. And banks, they concentrated their lending in real estate, commercial real estate.

MS. WOODRUFF: So the banks made some mistakes, is what you're saying.

MR. GLAUBER: Of course, the banks have made some mistakes. They made a bunch of bad loans and they've got to work those out. But the other problem is that we have a banking system that is regulated in a way that doesn't let it be competitive, that doesn't let it attract capital, build capital, and operate competitively and safely and we need to make changes that allow that to happen.

MS. WOODRUFF: And of course, that brings up the whole deregulation question in the administration. But before we get to that, I want to find out, is there anything else at work here other than what we've mentioned, the reasons, the recession, the overinvestment in real estate, and just the fact that, that the banks just made some mistakes?

REP. VENTO: Well, I think it goes beyond the recession. I think that there's been a failure to instill a market discipline during the decade of the '80s. In fact, there was an attitude of less regulation, less examination. And sadly, we're reaping the harvest in the '90s and in the S&L and bank failures. It's the same piece of cloth, as I said, in terms of what has happened. I think to characterize the banks' problem simply as a manifestation of the recession is really a mistake. In fact, it may be part of the reason we're having a recession in terms of the credit crunch and the renewed effort now to begin to have more discipline with regard to expansion or extension of credit. And so I think that, you know, the idea that somehow you're going to legislate or regulate this away by adding new powers or attracting capital, you can't attract capital unless these banks are profitable and can earn money. And these thousand banks on the watch list are not earning money.

MS. WOODRUFF: All right. Specifically, why is the administration proposal going to help this problem? Why is it going to help the banks and why is it going to make the deposit insurance fund, why is it going to put it into a stronger position?

MR. YINGLING: We don't agree with everything in the administration proposal but we do agree with the basic thrust of it. There are two areas where it's -- or three areas where it's particularly helpful. One, it strengthens regulation where it needs to be strengthened. Two, it reforms the deposit insurance system. There we want to go a little further on one particular item, that's the too big to fail doctrine. It's important that we reform the deposit insurance system. It is causing too much risk in the system today. And then third is to open up avenues for banks to compete in today's marketplace with international competitors and domestic competitors.

MS. WOODRUFF: Why is that important, Mr. Glauber, to openup the marketplace for banks?

MR. GLAUBER: It's important because we need to make banks an attractive place for people to invest. We need to allow them to attract capital so that that capital can act as a buffer between the mistakes may make and the taxpayer ultimately. Unless we have fully capitalized and safe banks, the taxpayer is always going to be in danger of having to pay for it.

MS. WOODRUFF: And how are they going to get to be fully capitalized? What would this legislation allow them to do that they can't do now?

MR. GLAUBER: It'll allow them to do essentially two major things. First of all, it would allow them to operate efficiently across state lines and be an efficient financial institution, rather than have to operate as separate subsidiaries across state lines. The other is it would open up the range of activities that they could be involved in, serve their clients better by offering them a wider range of products.

MS. WOODRUFF: Getting into insurance, getting into the securities --

MR. GLAUBER: The securities business, into the mutual fund business. The third thing it would do is allow commercial firms to invest capital in banks. That's where the capital is in this economy. If we're going to get capital into banks, we should allow commercial firms to do it on a safe basis, but allow them to do it.

MS. WOODRUFF: Dan Brumbaugh, are those the kinds of things that are going to help banks?

MR. BRUMBAUGH: Yes. Mr. Glauber just summarized the best part of the administration's proposal, and I think to understand the administration's proposal it's helpful to say that basically in the banking situation at the moment we have two problems. One is the problem of recapitalizing the bank insurance fund to take care of those institutions which are and are going to become insolvent. And the other is how do we prepare those who are solvent to go on into the future? And I support the proposals that Mr. Glauber just outlined. Where the proposals fall down, however, is in identifying the size of the problem, the amount of money that's going to be necessary and who's going to pay for it. The banks at the moment, in my opinion, cannot pay for the amount of money that's going to be necessary to close all the insolvent banks. And the proposal is very weak in that area. Also, we talked about deposit insurance reform. Real deposit insurance reform is going to have to go back to fundamental principles about of the amount of the coverage, who's covered, too big to fail, as was mentioned earlier, and a lot of those areas are not very well covered at all.

MS. WOODRUFF: Let me ask you specifically, Mr. Yingling, about this point about "too big to fail." You raised this a moment ago. This is the policy that now exists, where the government says that the bigger banks are going to be taken care of, we're not going to let them go under. What's wrong with that policy?

MR. YINGLING: Well, really it's a misnomer, Judy, because they do fail, the big banks, they failed Bank of New England. What they don't do is enforce the insurance limits so that in almost every bank failure, including most small bank failures, the FDIC handles the failure in a manner which insures all depositors. If you had a million dollars in the Bank of New England, you were covered. The exception tends to be an occasional small bank. The most recent case was the Freedom National Bank in Harlem, where large depositors didn't get covered.

MS. WOODRUFF: So -- but I gather there's not much disagreement here on that, that that's a policy that everybody agrees needs to be fixed, isn't that right?

REP. VENTO: Well, I think --

MS. WOODRUFF: Congressman Vento.

REP. VENTO: Well, everyone agrees on how to be fixed. The problem is if you look at the solution to combine big businesses that are commercial businesses with big banks, that means you've got bigger firms, and so you're running the risk -- the whole theory behind the administration's reform bill is to provide for consolidation through branching, and that's going to take place in some form, and to provide the General Motors to combine with the biggest banks in the country, or other companies, to do that. And the fact is that that just simply is going to make a catastrophic situation. You're working in the wrong direction. They have demonstrated no ability to limit this too big to fail policy which has eliminated market discipline. They practiced this throughout the decade of the '80s and there's simply a situation here where a Republican administration, the Bush administration, keeps professing its affection for the free enterprise system, but apparently it doesn't want to practice it when it comes to the theory behind banks, and they've created a situation that they have to work their way out of.

MS. WOODRUFF: Well, Mr. Glauber, wasn't your point though that the banks need the money they're going to earn by getting bigger and by getting into new businesses and so forth?

MR. GLAUBER: The only way to protect the taxpayer, to make the banking system healthy, is to have capital in it. They need to be able to earn money and be able to attract capital from investors. And we don't see any reason why those investors shouldn't be IBM as well as other financial institutions.

MS. WOODRUFF: Congressman Vento.

REP. VENTO: I don't think it has to come from IBM. It can come from individual investors. It doesn't have to be strained through IBM or General Motors or other, Ford Motor Company. The fact of the matter is it can come from a variety of different sources, not only that source. That isn't the only way that they can be profitable. You can't make a bank profitable by having 5 or 6 percent capital when they've got a portfolio of bad loans that are going to yield 50 or 60 cents on the dollar. That capital is not going to work. Most of the money has to be made up by the taxpayer now or by the bank insurance fund if the premiums are adequate, but they -- we can't charge any higher premiums because the banks can't tolerate them.

MS. WOODRUFF: Do you want to respond?

MR. GLAUBER: Well, surely we can't look to the banks to pay more and more money if we don't let them earn a profit. We think that they can earn a decent profit if we take some of the costs away, costs of operating inefficiently across state lines, allowing to operate by branches, which will save them billions of dollars a year.

MS. WOODRUFF: What about the point that someone made earlier that if it's going to cost, indeed, $200 billion or somewhere the numbers get so big they're hard to comprehend over the next two years, and we're talking about borrowing 70 billion for the FDIC from the Treasury Department, that doesn't cover -- anywhere come close to covering --

MR. GLAUBER: No, it doesn't, Judy, but by the same token Mr. Brumbaugh's estimate is really one of the ones on the way outside of the range. If you look at most everybody else's estimate, it's within the range of what's provided in the bill that --

MS. WOODRUFF: Estimate of --

MR. GLAUBER: Estimate of the size of the loss.

MS. WOODRUFF: Of the loss.

MR. GLAUBER: And the amount of money that the fund needs. Everybody's estimate is more or less in line with what's contained in this proposed bill.

MS. WOODRUFF: Mr. Brumbaugh.

MR. BRUMBAUGH: Let me just say that the estimates that I gave were a range. On the high end, the high end estimate that I gave was from a Federal Reserve Bank of Cleveland official. And then I mentioned the administration's estimate of $70 billion. The estimates that Professor Barth, Mr. Lighten and I gave during the congressional committee hearings were in the range at the high end of $70 billion, so that's where my own personal estimate is, not at the higher end. But I think that as much as I support Mr. Glauber's proposals on the acquisition of banks by commercial firms, the wider acquisition through nationwide branching, we have to say that the benefits of those kinds of programs are basically going to accrue to solvent institutions that are going to be going on forward and doesn't do much and cannot do much and the administration hasn't shown us any information which indicates that it's going to do much for those banks that are currently in grave, grave trouble. And that's one of the problems. I think I have to ask what Mr. Vento said however. General Motors is already one of the largest financial service firms in the country through its GE Credit and its finance company. These kinds of firms need to have the kind of freedom and the banks have to have the kind of freedom to access these kinds of finance companies, for example. The reason that fundamentally why we have this problem at the moment, as I believe Mr. Glauber pointed out earlier, is because we haven't allowed these banks the freedom to move into activities as the nature of technology and the markets change. And this proposal allows them to do it and must be implemented.

MS. WOODRUFF: But you would also argue that there are more reforms that have to be made as well in addition?

MR. BRUMBAUGH: Oh, many, many more. Even though this proposal makes a great deal of sense, it only scratches the surface of where we're going to have to go in the near future.

MS. WOODRUFF: Mr. Yingling, what happens if this reform proposal specifically doesn't pass the Congress, what happens?

MR. YINGLING: Well, I think in some form the bill is going to pass the Congress this year. The question is how comprehensive it's going to be. I'm very optimistic that at least the deposit insurance reform part of it taking care of too big to fail will pass. The other aspects of it are a little more questionable, although there seems to be some momentum building. If we don't have the broader aspects, we will be left with a banking system that is governed by laws that are totally out of date and has trouble competing both internationally and competitively.

MS. WOODRUFF: Congressman Vento, you were trying to get in.

REP. VENTO: Yeah, I was, Judy. I think that Mr. Brumbaugh's analysis that we have to have the big banks combined with the big companies leads to the indirect insurance and reliance on the government. You know, in this country, one of the things about our economic system is we can tell where the government ends and the private sector begins. In Europe and other places that we are trying to apparently emulate through this bill, you can't tell that. We're insuring the entire marketplace. And I don't think that the insurance system should be stretched to the point where everyone, everyone's assets are under the blanket. I think we've got to put some market discipline into the system. And with regards to bank failures, I think it's important to bear in mind that the administration really can -- is the one that's calling the shots in terms of determining when a bank fails, when it doesn't. We've some pretty bad examples of the Federal Reserve Board, for instance, extending the life of the banks and the regulators providing the forbearance and discussions of future forbearance that are a lot of great concern to Congress.

MS. WOODRUFF: Well, I think the point I believe that you made I know in a pre-interview with one of the reporters on our staff was it boils down to either paying a lot now or paying a lot more later on. Do you agree, Mr. Glauber, that that's really what we're talking about here?

MR. GLAUBER: We think that regulators should be able to move more quickly to close banks when their capital gets depleted. And, indeed, one part of this bill would allow regulators to move in on banks and close them, force them to merge before they ran completely out of capital. We think that's very important.

MS. WOODRUFF: And the other part of that question is whether we pay more -- whether we pay now or pay more later, how much of that money is going to have to come out of the taxpayers -- for example, the 70 billion from the Treasury Department, some of that is taxpayer dollars.

MR. GLAUBER: No, it isn't. In the recapitalization plan that we put forward that was adopted by the House Banking Committee, none of it is taxpayer money. All of that money will be paid by premiums from the banks.

MS. WOODRUFF: All of it?

MR. GLAUBER: All of it. Now, how much more could you take out of the banking system if you needed more? That gets to be more difficult. But if can hold the losses to this size, then we'll be okay.

MS. WOODRUFF: Yes. I was going to say Mr. Brumbaugh just quickly.

MR. BRUMBAUGH: Oh, it's very difficult to believe that the banks can really pay this money. The profitability of the commercial banking industry is half what it was in the 1970s when it was relatively robust. The overall capital levels have been dissipated in an uneven fashion and the profitability is uneven. The likelihood of the banks being able to pay $70 billion is almost zero, and this is a big part of what -- of the issue that we need to address that really hasn't been addressed, and that is who's going to pay how much.

MS. WOODRUFF: So what's a solution?

MR. BRUMBAUGH: The solution in the short run, in my opinion, is to tell taxpayers the truth, that this problem is much bigger than we estimated before, the government has estimated before, and it's going to require taxpayer dollars sooner rather than later.

MS. WOODRUFF: And Mr. Yingling.

MR. YINGLING: We would disagree with that. The banking industry has always paid for the cost of bank failures, and we're committed to continuing to do that. We think it can be done without any taxpayer money. We think if we pass comprehensive reform, that will go a long way to assure that it can be done without taxpayer money.

MS. WOODRUFF: Well, I'm sure that the taxpayers who are watching hope that that's correct. We want to thank all of you for being with us, Mr. Yingling, Mr. Glauber here in Washington, Congressman Vento, Mr. Brumbaugh, thank you all.

MR. MacNeil: The House Banking Committee approved a bank reform bill that includes many of the administration's proposals. A less sweeping bill is now before the Senate Banking Committee which is expected to vote by the end of the month. RECAP

MR. LEHRER: Again the major stories of this Thursday, the Senate passed two bills that would require doctors and other health care workers to tell patients if they have AIDS. President Bush said he hoped to grant special trade concessions to the Soviet Union as soon as possible and the United States and Syria agreed that the United Nations should have an observer role in a MidEast peace conference. Israel has opposed such participation. Good night, Robin.

MR. MacNeil: Good night, Jim. That's the NewsHour tonight. We'll be back tomorrow night with our weekly political analysts, Gergen & Shields. I'm Robert MacNeil. Good night.